Arizona's tech sector recovery over the past few years can be traced to a number of diverse factors. Among them are Arizona State University initiatives, the Governor's agenda, the rise of biotech and other startups and major corporate expansions.

Arizona State University's move toward economic development initiatives under President Michael Crow have been of critical importance.

The university has developed tech-friendly programs to help spin technology companies out of the university and has reached out to local tech entrepreneurs with training and mentoring options.

The school's Arizona Technology Enterprises outfit has spun out successful companies, and the Technopolis entrepreneur training program has helped groom entrepreneurs. Both programs have filled large holes in the local tech community.

Gov. Janet Napolitano and her public trumpeting of the tech sector during her time in office also has led to industry growth. She has formed her own advisory council focused on technology and pushed through bills that have helped grow the industry.

Outside of the efforts by ASU and the Governor's office, local companies have helped lead the charge. Biotechnology startups have begun to hit the scene, information technology and networking companies have grown in the state and expanded outside of it, and venture capitalists have started investing in technology startups again.

Aided by the developing Translational Genomics Research Institute, expanding Intel Corp. operations in Chandler, and the addition of Google and Monster.com to the scene, Arizona's technology sector quietly has found itself in surprisingly good shape.

Chips lead the charge

The semiconductor sector is often the bellwether of the overall technology industry, and that's no exception in Arizona. Right now, all indicators are positive.

Microchip Technology Inc., a semiconductor firm that employs about 1,500 people in Arizona, just came off a record financial quarter with sales of nearly $235 million -- up 14 percent from the same quarter in the prior year.

After pausing a moment to think about it, Microchip Chief Executive Steve Sanghi answered the following query with a pleasantly surprised reaction: Is tech back?

"Yes. I think so. We're coming off a record quarter -- even better than in 2000 -- and we have about 140 job openings all across the spectrum of the company," he said.

"This is not like the late 1990s. Good companies with good business plans are the ones succeeding."

Sanghi credited recent legislation with aiding the tech sector.

Last year, the state legislature passed a bill that directly benefited Arizona and the world's semiconductor giant, Intel Corp. The "sales factor" bill changed the tax structure for multi-state companies such as Intel, and company officials decided to build a$3 billion plant in Chandler -- in good part because the company would be paying far less taxes here than before.

The decision by Intel to expand here made headlines across the country and helped paint a picture of Arizona as being competitive in the tech sector. The new chip fabrication plant will add 1,000 high-tech jobs to Intel's already sizable operations in the southeast Valley.

A large portion of Arizona's high-tech identity is semiconductor manufacturing, and the industry's outlook is good, said Jim Feldhan, president of Phoenix-based Semico Research Corp.

"We expected 2005 to be worse than it was, and there was still 7 percent growth in shipments," he said. "This year, we're projecting about 17 percent growth."

Feldhan said consumer electronics products such as MP3 players and cellular phones are driving chip growth.

"Consumer attitudes have changed, and people are willing to pay for things like access to hot spots, or for online music, where a few years ago they weren't," he said.

Roy Vallee, chief executive of Avnet Inc., the state's largest tech firm, said it's not just the semiconductor firms leading the way in Arizona.

"There are a lot of tech companies here that aren't household names, but they are growing," said Vallee, who co-chairs the Governor's Council on Innovation and Technology.

"The industry has been steadily recovering since 2003, and right now Arizona has tremendous growth and tremendous demand for technology," he said.

Changing attitudes

In a state economy so intimately tied to real estate and tourism, promoting the high-tech industry -- even with its much higher than average wages -- has been a tough sell historically.

The legislature often has turned a cold shoulder to tech's interests and few high-profile industry leaders have emerged.

But the sense now is that attitudes on technology in Arizona are changing, from the Governor's office on down the line.

The dot-com bust was a black eye for technology across America, but as Arizona's economy is continually in competition on an international scale, the importance of a thriving high-tech industry is becoming more valued.

Groups like the Greater Phoenix Economic Council, Greater Phoenix Leadership and ASU's Crow have helped shine a brighter light on the sector.

"There is a general heightened understanding of the need to be more active and competitive in relation to the tech sector," said Quentin Smith, who's Arizona Business Accelerator assists tech startups. "The state's business atmosphere is more focused on letting innovation flourish."

Mike Fong, who co-chairs GCIT with Vallee and heads up local networking firm Calence LLC, also sees attitudes on tech changing.

"Fundamentally, there has been an awareness by the broader business community of the importance of having knowledge economy jobs," he said. "The sales factor bill helped change things on the policy side, and the rallying around biotech has helped a great deal."

Capitalizing on the current momentum in the state's tech industry through education is critical, said Ted Kraver, a local tech industry veteran and e-learning advocate.

A recent study by the Maricopa Community College System found that thousands of new high tech workers will be needed locally in the next few years, and people are not being trained fast enough.

"When technology is up, everyone wants to go to college and have a high-tech career," he said. "But we need to have flexibility in the work force because cycles are inherent in the technology industry. I think e-learning can help speed up how we train the work force, so they're prepared for those high-tech jobs when they are needed."

Sanghi, who routinely hires people from out of Arizona for his positions at Microchip, said it's vital that Arizona grows its high-tech talent base.

"There's a lot of talent here, but we need more. Companies want an exact fit for what they need."

The financial puzzle

A lack of capital to fund and grow Arizona startups has long hindered the state's tech sector, but improvement has been made of late, and a proposal at the Legislature could create new opportunities for local high-tech entrepreneurs.

Last year, the state passed a bill providing incentives for those who invest in early-stage Arizona tech firms. The Angel Investment Tax Credit program was green-lighted and will go into effect this summer.

On the heels of that tech-friendly legislation is this year's proposed $25 million Innovation Arizona fund. Proposed by Napolitano, it is designed to attract top researchers and scientists to the state and move the state's R&D activity into the market. The public-private partnership would be run by a non-government board of directors.

Similar proposals to increase the financial backing of Arizona's tech startups have been floated in the past with little success, but after the tech lobby enjoyed a good deal of success at the Legislature last year, tech leaders say Innovation Arizona has a good shot to pass.

Arizona's venture capital numbers -- though still a blip on the screen compared to national figures -- are growing nicely. Arizona venture capital investments for 2005 totaled $165 million, up from $77 million raised in 2004, according to a recent Ernst & Young/VentureOne report.

It was Arizona's highest total since 2000. Nationally, the venture capital total rose to its highest level since 2001 with $22 billion invested, a 2 percent increase from last year.

Venture capital investment is considered a strong indicator of technology's growth since most money is invested in entrepreneurial tech firms, and the investments generally are high-risk.

Robert Morrison, executive director of the Desert Angels investment group in Tucson, said investments are up because the dot-com hangover is dissolving.

"Investments have increased because the pain of the bubble burst is wearing off," he said. "What we're seeing is a return to normalcy, and we're helped because we are a fast-growing state with a good economic outlook."

Smith of the Arizona Business Accelerator said a lot of investors have made a killing in real estate over the past few years, and have begun to look at tech startups as a source for investment.

"Their risk tolerance is higher because, in a lot of cases, their pool of money is larger."

The tech sector's comeback in Arizona has been a difficult one that's taken time, leadership and maybe most importantly a change in attitude. It's hard to imagine the industry becoming as vital to Arizona as real estate or tourism, but the long-term health of the state may depend on it becoming so.

In Arizona and across the U.S., technology fell flat on its face a few short years ago, but it grabbed the ropes, slowly pulled itself up and is fighting again.